Airbus struggles to loosen Boeing's grip on Fortress Japan

SINGAPORE/TOKYO Mon Sep 2, 2013 5:08pm EDT

A Japan Airlines (JAL) aircraft flies near a JAL building at Tokyo's Haneda Airport in this October 27, 2009 file picture. REUTERS/Toru Hanai/Files

A Japan Airlines (JAL) aircraft flies near a JAL building at Tokyo's Haneda Airport in this October 27, 2009 file picture.

Credit: Reuters/Toru Hanai/Files

SINGAPORE/TOKYO (Reuters) - Airbus appears to have been pushed back once again in landmark efforts to break Boeing Co's grip on Japan's two largest airlines, which need to buy billions of dollars worth of planes in the next decade.

In Japan, where buying American jets once helped take the sting out of trade deficit tensions, Boeing dominates with around an 80 percent market share. Flag carrier Japan Airlines Co Ltd has yet to buy an Airbus aircraft even though the political prodding to purchase Boeing jets partially built in Japan has lessened.

This year, Airbus finally spied a breach in Boeing's Japanese fortress.

Glitches with Boeing's 787s, which both JAL and rival All Nippon Airways have put at the center of their fleet planning, created an opening for it to offer its just-finished A350 to replace around 50 of the airlines' ageing Boeing 777s from 2020. Sticking with Made in America could make the Japanese carriers Boeing launch customer once again for an only-on-paper jet, the 777X, that it has yet to green light.

That window may, however, be closing as Boeing launches a charm counter-offensive to blunt Airbus and shore up its Japanese base. Boeing's order to its sales team from its Seattle commercial aircraft base is "do everything you can to win this order", a source familiar with the negotiations told Reuters.

Airbus got a foothold at ANA, which operates Airbus A320s on short-haul services, but hasn't scored an order there since 2005. ANA's medium and long-haul fleet consists only of Boeing planes, and it is the world's largest operator of the Dreamliner. Airbus's most notable success has been among Japan's emerging discount carriers, including an order by Skymark Airlines Inc in 2011 for six super-jumbo A380s.

High-profile problems with the Dreamliner, including a months-long grounding earlier this year due to problems with the aircraft's lithium-ion batteries, cost the two Japanese carriers millions of dollars.

More importantly, it led to a large degree of frustration with Boeing in Tokyo and this presented Airbus with a golden opportunity. It had pushed hard in the past, but its latest pitch to JAL and ANA included one key message that may finally resonate - the advantage of having an alternative supplier of aircraft.

Airbus is offering the first variant of its new A350, the -900, which is undergoing flight tests and scheduled to be delivered from 2016, to replace the 777-200s. It is also pushing the upcoming larger -1000 to replace the 777-300 family.

Boeing is offering the largest variant of the 787, the -10, as well as a proposed upgraded version of the 777, provisionally known as the 777X, that it says will have lower operating costs and longer range.

Boeing and Airbus declined to comment on the negotiations.

At the Paris Air Show in June, chief Airbus salesman John Leahy said: "It is just a matter of time before Japan Airlines or All Nippon Airways fly Airbus wide-body aircraft".

Indeed, that appeared imminent about two months ago, when industry sources said JAL was close to an agreement with Airbus. But the "deal appeared to slip away", according to a second source familiar with the negotiations, as Boeing executives redoubled their pitch in recent weeks.

TIMING IS EVERYTHING

Price, while important, is only part of the equation, given that the airlines will get substantial discounts off the list price. Timing may prove to be the deciding factor.

Within JAL, there is a division between those who want to stick with Boeing and those who prefer an alternative supplier. The 787's technical problems may have increased the frustration with Boeing, but a source close to JAL said that alone wouldn't tip the balance to Airbus.

"JAL still has confidence in Boeing's aircraft. The decision hinges on a larger strategic discussion about its aircraft procurement strategy," the source close to JAL said.

"The question before the management is if they should stick to a known and reliable supplier, or order Airbus aircraft in order to ensure they have the best options from two relatively equal companies. The answer to that will guide the decision."

JAL spokesman Jian Yang declined to provide details about the discussion. "Nothing has been decided yet," he said.

ANA spokesman Ryosei Nomura said the airline was considering both the 777X and the A350.

"At the moment we are gathering information and have not yet begun any formal assessment," Nomura said. "We don't yet know when we will reach a conclusion."

Airbus has won orders for its A350s from marquee customers such as Cathay Pacific Airways, Singapore Airlines, Qatar Airways and Emirates Airline. Their confidence in the plane means that Airbus has a much stronger case than before to make to JAL and ANA.

Its challenge is that it remains untested in regular operations and while its testing is on track, some in the industry worry that it could face delays and problems similar to those that have plagued 787 - the last new-generation airplane.

That perception may hinder the 787-10 as well, although United Airlines and SIA have signed up for the aircraft, which was launched in June.

The 777, on the other hand, has been in service for almost two decades. The 777-X is Boeing's answer to the A350-1000.

The question facing airlines considering the 777X is whether an upgraded version of an older aircraft design will be better than a new-generation aircraft like the A350.

"The Japanese carriers are facing a tough choice, go with Boeing and be a launch customer again for an aircraft that could slip beyond its 2019 start of delivery target, or pick Airbus, an unknown, but with a firmer delivery schedule," said a third source close to the negotiations.

If they delay a decision, they may not enjoy the benefits of being among the early customers for the 777X or miss out on the delivery slots for the A350-1000.

"This is an intense battle, and the pressure is on the airlines and the aircraft manufacturers. There are so many variables at stake here. Whatever the decision is, someone will be very unhappy," said one of the sources familiar with the negotiations.

(Editing by Emily Kaiser)

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Comments (3)
mja64 wrote:
This story has an assumption that the A350 is never going to have any issues when it’s launched. Let’s remember that the A380 had many issues as well as being grounded for having cracks found in the wing.

Sep 03, 2013 3:28pm EDT  --  Report as abuse
JeanGone wrote:
The A380 was never grounded. That claim is untrue. Yes, they had found cracks in angles on the wing and they need to be replaced with a newly design angles but none of the aircraft need to be grounded for this. They will, however be out of service for a certain period, when these brackets are replaced.

One must consider the fact that Airbus has not made so many great changes in technology on the A350 as Boeing had on the 787. The biggest example is the all-electric architecture, which everybody knows has been causing Boeing the biggest headaches. Of course, JAL and ANA are already well acquainted with the 787, and I would assume they would have not issues with a 787-10 as that should be all mature technology by the time they start delivering them. The 777x would also not be an issue for them as their will not be any electrical architecture and not so many new technologies will be incorporated in the design.
So it is really a matter of time and offering the right deal, for both Boeing and Airbus.

Sep 04, 2013 6:26am EDT  --  Report as abuse
mja64 wrote:
@ JeanGone
As per “The Manufacture” an online source –
on Febuary 8th, 2012 “All Airbus A380 aircraft grounded due to wing cracks”
Aircraft maker Airbus has been ordered to ground and check the wings of all A380 superjumbo planes currently in operation.
The move forced by The European Aviation Safety Agency (EASA) comes after Australian carrier Qantas Airways grounded one of its A380 aircraft after engineers found 36 wing cracks after the aircraft encountered severe turbulence.
This was an Airbus engineering issue unlike in Boeings’s case it was 3rd party issues by Yuasa and the latest one by Honeywell
Airbus A350 is yet to be commercially used and there is no doubt that they are going to encounter issues as there is no such thing as a “perfect” aircraft

Sep 04, 2013 9:58am EDT  --  Report as abuse
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